<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 2000.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM TO
Commission File No. 1-7848
LAZARE KAPLAN INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 13-2728690
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
529 FIFTH AVENUE, NEW YORK, NY 10017
(Address of principal executive offices) (Zip Code)
</TABLE>
(212) 972-9700
(Registrant's telephone number, including area code)
--------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
As of September 30, 2000, 7,818,443 shares of the registrant's common
stock were outstanding.
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PART 1 - FINANCIAL INFORMATION
ITEM 1. Financial Statements
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended
August 31,
(Unaudited)
---------------------------
2000 1999
---- ----
<S> <C> <C>
Net sales $ 77,575 $ 69,742
Cost of sales 68,871 63,250
----------- ----------
8,704 6,492
----------- ----------
Selling, general & administrative expenses 5,645 4,450
Interest Expense - net 1,361 706
----------- ----------
7,006 5,156
----------- ----------
Income before taxes and cumulative effect of
change in accounting principle 1,698 1,336
Income tax provision 665 320
---------- ----------
Income before cumulative effect of change in
accounting principle 1,033 1,016
Cumulative effect of change in method of accounting for
the costs of start-up activities -- (1,522)
---------- ----------
Net income/(loss) $ 1,033 $ (506)
========== ==========
Income/(loss) per share
Basic earnings per share before cumulative
effect of change in accounting principle $ 0.13 $ 0.12
========== ==========
Basic earnings/(loss) per share $ 0.13 $ (0.06)
========== ==========
Average number of shares outstanding during the period 7,949,268 8,369,318
========== ==========
Diluted earnings per share before cumulative
effect of change in accounting principle $ 0.13 $ 0.12
========== ==========
Diluted earnings /(loss) per share $ 0.13 $ (0.06)
========== ==========
Average number of shares outstanding during the period 8,002,933 8,447,179
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
2
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Consolidated Balance Sheets
(in thousands, except share data)
<TABLE>
<CAPTION>
AUGUST 31, 2000
(Unaudited) May 31, 2000
--------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,407 $ 7,254
Accounts receivable - net 59,100 66,258
Inventories - rough diamonds 26,033 31,155
- polished diamonds 64,101 57,484
Prepaid expenses and other current assets 12,870 12,191
Deferred tax assets - current 4,380 6,257
-------- --------
TOTAL CURRENT ASSETS 170,891 180,599
DEFERRED TAX ASSETS, net 5,955 4,655
NON-CURRENT ASSETS, net 11,942 17,445
-------- --------
TOTAL ASSETS $188,788 $202,699
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and other current liabilities $ 48,080 $ 49,874
Notes payable - other and current position
of long-term debt 21,924 32,709
-------- --------
TOTAL CURRENT LIABILITIES 70,004 82,583
OTHER LONG-TERM DEBT 36,563 37,309
-------- --------
TOTAL LIABILITIES 106,567 119,892
-------- --------
STOCKHOLDERS' EQUITY
Preferred stock, par value $.01 per share
Authorized 5,000,000 shares;
no shares outstanding -- --
Common stock, par value $1 per share
Authorized 20,000,000 shares;
issued 8,543,393 shares 8,543 8,543
Additional paid-in capital 58,182 58,182
Cumulative translation adjustment 217 239
Retained earnings 20,765 19,732
-------- --------
87,707 86,696
Less treasury stock, 724,950 and 498,150
shares at cost (5,486) (3,889)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 82,221 82,807
-------- --------
$188,788 $202,699
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
3
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
August 31,
--------------------
2000 1999
-------- --------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) $ 1,033 $ (506)
Adjustments to reconcile net income/(loss)
to net cash provided by
operating activities:
Depreciation and amortization 422 327
Provision for uncollectible accounts 20 15
Deferred income taxes 577 300
Cumulative effect of change in method of accounting -- 1,522
(Increase)/decrease in assets and increase/(decrease)
in liabilities:
Accounts receivable 7,138 (9,636)
Inventories (1,495) 1,868
Prepaid expenses and other current assets (679) (1,322)
Non-current assets 5,493 (249)
Accounts payable and other current liabilities (1,794) 11,592
-------- --------
Net cash provided by operating activities 10,715 3,911
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (412) (681)
-------- --------
Net cash used in investing activities (412) (681)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in short-term borrowings (10,785) (2,158)
Decrease in long-term borrowings (746) (442)
Purchase of Treasury Stock (1,597) --
Proceeds from exercise of stock options -- 15
-------- --------
Net cash used in financing activities (13,128) (2,585)
-------- --------
Effect of cumulative translation adjustment (22) 25
-------- --------
Net increase/(decrease) in cash (2,847) 670
Cash and cash equivalents at beginning of year 7,254 5,181
-------- --------
Cash and cash equivalents at end of period $ 4,407 $ 5,851
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
4
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. INTERIM FINANCIAL REPORTING
This financial information has been prepared in conformity with the accounting
principles and practices reflected in the financial statements included in the
annual report filed with the Commission for the preceding fiscal year. In the
opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments necessary to present fairly Lazare Kaplan
International Inc.'s operating results for the three months ended August 31,
2000 and 1999 and the financial position as of August 31, 2000.
The balance sheet at May 31, 2000 has been derived from the audited financial
statements at that date but does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended May 31, 2000. The operating results for
the interim periods presented are not necessarily indicative of the operating
results for a full year.
2. TAXES
The Company's subsidiaries conduct business in foreign countries. The
subsidiaries are not subject to Federal income taxes and their provisions have
been determined based upon the effective tax rates, if any, in the foreign
countries.
Deferred income taxes reflect the net tax effects of (a) temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes, and (b) operating loss
carryforwards. The Company's net deferred tax asset as of August 31, 2000, which
is comprised primarily of operating loss carryforwards, is approximately
$11,220,000 less a valuation allowance of approximately $885,000 resulting in a
net deferred tax asset of $10,335,000.
At August 31, 2000 the Company has available U.S. net operating losses of $18.1
million which expire as follows:
<TABLE>
<CAPTION>
Year Amount
---- ---------
<S> <C>
2001 3,500
2002 500
2007 500
2008 900
2010 400
2013 1,200
2019 11,125
-------
$18,125
=======
</TABLE>
5
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3. EARNINGS PER SHARE
Basic and diluted earnings per share are computed in accordance with Financial
Accounting Standards Board Statement No. 128 "Earnings per Share." Basic
earnings per share is computed based upon the weighted average number of common
shares outstanding. Diluted earnings per share includes the impact of dilutive
stock options.
4. COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" (SFAS 130) established rules for the reporting and display of
comprehensive income and its components. SFAS 130 requires foreign currency
translation adjustments to be included in other comprehensive income. For the
three months ended August 31, 2000 and 1999, total comprehensive income/(loss)
was $1,011,000 and $(481,000), respectively.
5. CUMULATIVE EFFECT OF CHANGE IN METHOD OF ACCOUNTING FOR START-UP COSTS
On June 1, 1999 the Company adopted Statement of Position (SOP) 98-5, "Reporting
on the Costs of Start-Up Activities", which requires that start-up costs
capitalized prior to adoption be written off as a cumulative effect of a change
in accounting principle and any future start-up costs be expensed as incurred.
As a result, the Company recorded a non-cash charge of $1,522,000 (net of tax
benefit of $671,000). The effect of adoption of SOP 98-5 on income from
continuing operations for the three months ended August 31, 1999 was
insignificant.
6
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6. GEOGRAPHIC SEGMENT INFORMATION
Revenue, gross profit/(loss) and income/(loss) before income taxes for the
three months ended August 31, 2000 and 1999 and identifiable assets at the end
of each of those periods, classified by geographic area, which was determined by
where sales originated from and where identifiable assets are held, were as
follows (in thousands):
<TABLE>
<CAPTION>
North Far Elimi- Consoli-
America Europe Africa East nations dated
--------- -------- -------- ------ --------- ----------
Three months ended August 31, 2000
-----------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales to unaffiliated customers $ 39,809 $34,298 $ 15 $ 3,453 $ -- $ 77,575
Transfers between geographic areas 11,553 10,022 -- -- (21,575) --
-------- ------- ------- ------- -------- --------
Total revenue $ 51,362 $44,320 $ 15 $ 3,453 ($ 21,575) $ 77,575
-------- ------- ------- ------- -------- --------
Gross profit/(loss) $ 7,845 $ 416 $ (83) $526 $ -- $ 8,704
-------- ------- ------- ------- -------- --------
Income/(loss) before income taxes
and cumulative effect of change in
accounting principle $ 3,128 $ (312) $ (370) $ (748) $ -- $ 1,698
-------- ------- ------- ------- -------- --------
Identifiable assets at August 31, 2000 $155,222 $50,234 $13,870 $13,545 ($ 44,083) $188,788
-------- ------- ------- ------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
North Far Elimi- Consoli-
America Europe Africa East nations dated
--------- -------- -------- ------ --------- ----------
Three months ended August 31, 1999
------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales to unaffiliated customers $ 24,255 $41,270 $ -- $ 4,217 $ -- $ 69,742
Transfers between geographic areas 4,793 812 17,712 -- (23,317) --
-------- ------- ------- ------- -------- --------
Total revenue $ 29,048 $42,082 $17,712 $ 4,217 ($ 23,317) $ 69,742
-------- ------- ------- ------- -------- --------
Gross profit $ 4,821 $ 726 $ 189 $ 756 $ -- $ 6,492
-------- ------- ------- ------- -------- --------
Income/(loss) before income taxes
and cumulative effect of change in
accounting principle $ 1,166 $ 384 $ (90) $ (124) $ -- $ 1,336
-------- ------- ------- ------- -------- --------
Identifiable assets at August 31, 1999 $146,634 $23,311 $25,166 $11,587 ($ 46,259) $160,439
-------- ------- ------- ------- -------- --------
</TABLE>
The identifiable assets which are included in the eliminations primarily
represent advances to affiliates. These advances are included therein since the
Company, which is the parent company, finances the operations of these
affiliates.
7
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6. GEOGRAPHIC SEGMENT INFORMATION (CONTINUED)
Revenue and gross profit for the three months ended August 31, 2000 and 1999
classified by product were as follows (in thousands):
<TABLE>
<CAPTION>
Polished Rough
Three months ended August 31, 2000 diamonds diamonds Total
---------------------------------- -------- -------- -----
<S> <C> <C> <C>
Net sales $47,074 $30,501 $77,575
------- ------- -------
Gross profit $ 7,693 $ 1,011 $ 8,704
------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
Polished Rough
Three months ended August 31, 1999 diamonds diamonds Total
---------------------------------- -------- -------- -----
<S> <C> <C> <C>
Net sales $29,682 $40,060 $69,742
------- ------- -------
Gross profit $ 5,594 $ 898 $ 6,492
------- ------- -------
</TABLE>
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
This quarterly report contains, in addition to historical information, certain
forward-looking statements that involve significant risks and uncertainties.
Such forward-looking statements are based on management's belief as well as
assumptions made by, and information currently available to, management pursuant
to the "safe harbor" provisions of the Private Securities Litigation Reform Act
of 1995. The Company's actual results could differ materially from those
expressed in or implied by the forward-looking statements contained herein.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed in "Liquidity - Capital Resources" and in Item 1 -
"Description of Business" and elsewhere in the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 2000. The Company undertakes no
obligation to release publicly the result of any revisions to these
forward-looking statements that may be made to reflect events or circumstances
after the date of this quarterly report or to reflect the occurrence of other
unanticipated events.
RESULTS OF OPERATIONS
NET SALES
Net sales during the three months ended August 31, 2000 were $77.6 million
compared to $69.7 million in sales during the comparable period last year.
Revenue from the sale of polished diamonds was $47.1 million for the three
months ended August 31, 2000 compared to $29.7 million in the comparable period
last year, an increase of 59%. The increase in polished sales was primarily due
to higher sales of stones produced at the Company's factories in Russia.
Rough diamond sales were $30.5 million for the three months ended August 31,
2000 compared to $40.1 million in the comparable period last year. The decrease
from the prior year was attributable to the termination of the Company's rough
buying operation in Angola during the fourth quarter of fiscal 2000 partially
offset by increased volume from other rough diamond sources.
GROSS PROFIT
During the three months ended August 31, 2000 gross margin on net polished sales
was 16.3% compared to 18.8% in the comparable period last year. The decrease in
polished gross margin percentage is primarily attributable to lower gross margin
on smaller stones produced at the Company's factories in Russia. Rough gross
margin during the three months ended August 31, 2000 was 3.3% compared to
2.2% in the same period last year. The improved rough gross margin percentage
primarily reflects cost reductions achieved through the termination of
operation in Angola. As a result of the foregoing, overall gross margin
percentage increased to 11.2% in the current period compared 9.3% for the same
period last year.
9
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the three months ended August
31, 2000 were $5.6 million, compared to $4.5 million for this period last year.
The increase was primarily attributable to increased advertising expenditures,
higher compensation and benefits costs (including selling commissions) and a
decrease in foreign exchange gains versus the same period last year.
INTEREST EXPENSE
Net interest expense for the three month period ended August 31, 2000 was
$1,361,000 compared to $706,000 last year. The increase was due to increased
levels of borrowing during the current year.
CUMULATIVE EFFECT OF CHANGE IN METHOD OF ACCOUNTING FOR START-UP COSTS
On June 1, 1999 the Company adopted Statement of Position (SOP) 98-5, "Reporting
on the Costs of Start-Up Activities", which requires that start-up costs
capitalized prior to adoption be written off as a cumulative effect of a change
in accounting principle and any future start-up costs be expensed as incurred.
As a result, the Company recorded a non-cash charge of $1,522,000 (net of tax
benefit of $671,000), or $0.18 per share.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital at August 31, 2000 was $100.9 million, which was
$2.9 million more than its working capital at May 31, 2000. This increase
primarily reflects the repayment of loans with cash generated by operations.
The Company maintains a $40 million long-term unsecured, revolving loan which it
utilizes for general working capital purposes. It also maintains a $30 million
unsecured line of credit which is primarily used to finance rough inventory
transactions. In addition, the Company has a Yen denominated facility
(approximately $ 8.3 million at August 31, 2000) which is used in support of its
operations in Japan.
Stockholders' equity was $82.2 million at August 31, 2000 as compared to $82.8
million at May 31, 2000. This decrease primarily reflects the repurchase of $1.6
million of treasury stock offset by earnings during the period. No dividends
were paid to stockholders during the three months ended August 31, 2000.
The Company believes that it has the ability to meet its current and anticipated
financing needs for the next twelve months.
10
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK
Not applicable
PART 2
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
(27) Financial Data Schedule
(B) Reports on Form 8-K
None
11
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LAZARE KAPLAN INTERNATIONAL INC.
By /s/ William H. Moryto
----------------------------
William H. Moryto
Vice President and
Chief Financial Officer
Dated: October 16, 2000
12
